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Opinion: Volkswagen Invests Heavily in EV Manufacturing

Volkswagen has established its U.S. beachhead in right-to-work Tennessee to build a new generation of electric vehicles starting with the ID.4 SUV. VW is investing $41 billion in electrification over the next five years.

(TNS) — General Motors and Ford aren’t the only automakers in the United States betting the farm on EVs.

Volkswagen has established its U.S. beachhead here in right-to-work Tennessee to build a new generation of electric vehicles starting with the ID.4 SUV. VW is investing $41 billion in electrification over the next five years, with $4.3 billion targeted at the Chattanooga plant that will begin producing ID.4s next year for North America.

EVs make up a sliver of U.S. sales, but the German automaker is all-in, hiring innovative former Cadillac chief Johan de Nysschen to run the show from Chattanooga; building a battery assembly plant; and partnering with Korean battery supplier SKI, which has erected a multi-billion plant across the border in Georgia.

“We’ve got to make it work,” said de Nysschen, the chief operating officer for Volkswagen of America, who built a reputation as a straight shooter in a career that spans Audi, Infiniti and Caddy. “We have burned the bridges behind us.”

VW’s ID.4 and smaller ID.3 already make up 15% of VW’s German sales with heavy government subsidies. VW, like the Detroit automakers, says U.S. taxpayer support is key as it ramps up sales of the ID.4 (the ID.3 is too small for America) as well as a future ID Buzz van and an as-yet-unnamed sedan.

The Detroit News tested an all-wheel-drive, $50,870 version of the ID.4 across southern Tennessee. With its 77 kWh of batteries stored under the cabin, the nimble EV recalled Tesla’s hot-selling Model Y SUV with keyless startup and liquid-smooth acceleration. At the Chattanooga Aquarium, ID.4 turned the heads of a young couple.

“Is that a new electric car?” said one. Automakers think a Millennial generation raised on plug-in smartphones will flock to plug-in cars.

Unlike the Detroit automakers, however, VW is not targeting Tesla with the compact-sized ID.4 — but segment volume sales leaders like the gas-powered Toyota RAV4 and Honda CR-V.

“Toyota and Honda don’t have anything like this,” said Scott Keogh, de Nysschen’s boss who runs VW North America from Herndon, Va.

Keogh expects a $7,500 to 10,000 tax rebate from Congress this year for each EV buyer. Significantly, he expects the rebate will be at the point of sale with no volume cap — a departure from the past, when Congress handed out $7,500 tax credits that could only be realized against an individual’s tax liability. The tax credit was capped at 200,000 sales — a number Tesla and GM long ago eclipsed — but would now be limitless.

Subtract $10,000 from the $50k ID.4 tester and its $40,000 price tag is close to that of a loaded RAV4 Hybrid.

Previous government attempts to encourage U.S. alternative fuels — diesel, ethanol, electric — have struggled. Auto executives are mindful that only Tesla (which accounts for 2 in 3 EV sales in the U.S.) has gotten any traction, even without a tax credit. But Keogh is confident the subsidized ID.4 will be a volume seller.

The News got a tour of the sprawling Chattanooga plant where ID.4 will be built alongside the hulking, gas-powered, three-row Atlas SUV and Atlas Cross Sport. Keogh acknowledges the paradox but says VW must meet market demands today to pay for the transition to VW’s EV plans of tomorrow. It’s a similar business model to that of Detroit automakers with pickup trucks/EVs.

“The Atlas makes nine times as much money as the Passat sedan that we used to build here,” said Keogh.

Industry leaders say a confluence of factors has ramped up the pressure for automakers to ditch gas engines: the rise of socialist governments, activist corporations and the continuing decline of lithium battery prices.

Governments are demanding battery-powered vehicles. China, the world’s biggest auto market, is punishing gas engines. So is Europe — and in the U.S., former presidential candidate and socialist Sen. Bernie Sanders (I-Vt.) is leading a historic, $3.5 trillion climate bill that aims to transform the auto and utility sectors to zero-emission.

Regulators in states like California, America’s (and VW’s) biggest auto market, are for the first time dictating which powertrains carmakers must build.,

“Under government EV regulations over the next 10 years, we won’t be able to sell (internal-combustion vehicles),” said Keogh. “We have to invest now.”

Chattanooga roads are largely devoid of EVs. Only 2% of the U.S. market is electric and half of those sales are in politically green California. The V6-powered Atlas SUV is more prevalent here along with other gas-powered SUVs that fill up at $3 a gallon. Automakers point to Norway as the best example of electric adoption — there, EV sales are subsidized by about 50% of sticker, and gas prices are taxed to $8 a gallon.

“I don’t expect American politicians to approve $8-a-gallon gas,” smiles de Nysschen.

Encouraged by activist investors, CEOs like Keogh and GM’s Mary Barra have become vocal on global warming, echoing Democratic Party rhetoric that the planet is in crisis.

“We see it almost every day now. Environmental danger is a focus around the world,” said Keogh. “It is true for every farmer, every fisherman. We will make a difference.”

Corporations across the spectrum are united on this — as well as an unspoken fear they will become targets of government lawsuits to clean up weather-related damage. “(Electrification) will be the biggest transformation in the history of the automobile,” said de Nysschen.

The embrace of such a partisan Democratic issue in Republican-controlled Tennessee would seem to work against Volkswagen. But the automaker has been embraced by Republicans here for bringing thousands of jobs to the state with its sprawling, 3.8-million square foot facility thanks, in part, to its right-to-work status.

The refusal of VW to unionize plants has rankled Democrats and led to two contentious — and failed — UAW campaigns to unionize. Republicans have rallied around VW (and foreign transplants in other states) to oppose Democratic attempts to give EVs produced at unionized plants an added $4,500 tax break.

“The rules have been tilted after we agreed to what the rules were,” said de Nysschen of labor agreements under a new North American free trade deal (USMCA) that gave workers the right to choose union representation.

The Detroit News piloted the ID.4 across 128 miles of hilly Tennessee landscape. But the AWD model’s battery lost 171 miles — or 75% — of predicted range on a 75-degree September day. Come winter, the battery will suffer further in cold conditions.

Such concerns, VW executives say, make the 249-mile range ID.4 a suitable suburban commuter car. They hope Congress’s billions will fund infrastructure to make long-distance trips more viable. Keogh himself uses an ID.4 to commute while his wife’s gas-powered Audi Q7 does trip duty.

After Dieselgate, VW is determined to use ID.4 to remake the company’s image. It also makes sense for the company’s bottom line. Smaller companies don’t have VW’s billions to build new battery plants like Chattanooga. Keogh said licensing that technology to smaller automakers and startups is a business opportunity.

As is battery manufacturing, which is less labor intensive than a gas-powered drivetrain (Keogh expects little labor change on already highly automated assembly lines).

Keogh is confident of VW’s direction but still thinks it will take 30 to 40 years to transition to EVs. After all, the hottest vehicle in VW’s lineup is not the ID.4 but the all-new, gas-driven, $24,190 Taos SUV, which sold more than 7,000 units in July — more than all ID.4 sales in the second quarter.

© 2021 The Detroit News. Distributed by Tribune Content Agency, LLC.
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